By TIOL News Service

AHMEDABAD, SEPT 27, 2014: DURING the period 2006-07 and 2007-08 the appellant had availed CENVAT Credit on services such as Customs House Agent's services, Shipping Agent's and Container services and Commission paid to overseas agents in respect of finished goods which were exported.

Revenue entertained a view that the services relate to clearance of finished goods beyond the place of removal and sales activities and they are not related to manufacturing activities.

Proceedings were initiated and the credit availed was denied along with imposition of penalty and interest.

Before the CESTAT the appellant submitted that the issue was no more resintegra and in a host of decisions the Tribunal had taken a view that where exports are FOB basis, the place of removal has to be taken as port and, therefore, the service availed by assessee till the goods reach the port would be admissible; that without the assistance of overseas agents, manufactured goods cannot be sold and, therefore, the services of overseas agents have to be treated as one relating to manufacture.

The CESTAT adverted to the decisions in Lanco Industries Ltd. Vs. CCE, Tirupathi - 2009-TIOL-1999-CESTAT-BANG Cadila Healthcare Ltd. Vs. CCE, Ahmedabad - 2010-TIOL-59-CESTAT-AHM, Nilkamal Crates & Bins Vs. CCE, Vapi - 2010-TIOL-510-CESTAT-AHM Adani Pharmachem Pvt. Ltd. Vs. CCE, Rajkot - 2008-TIOL-2584-CESTAT-AHM and concluded that all the decisions support the claim of the appellant that they are eligible for the benefit of service tax credit taken by them. Inasmuch as the appeal was allowed with consequential relief.

We reported this order as 2012-TIOL-1514-CESTAT-AHM.

Aggrieved with this order, the CCE, Daman is before the Gujarat High Court and raises the following substantial question of law:

"Whether the Hon'ble Tribunal was correct in holding that Credit of Service tax paid on Customs House Agents Services, Shipping Agents and Container Services and Services of Overseas Commission is admissible to the manufacturer as "input Service Tax credit", by overlooking the Statutory provision of Rule 2(l) of the CENVAT Credit Rules, 2004?"

Both sides relied upon a catena of case laws. The respondent assessee also raised the ground of limitation and referred to the Board Circular 943/2011-CX dated 29.04.2011 where it is clarified against sr. no. 5 that service tax paid under the head Business Auxiliary Service (BAS) on account of sales commission is admissible as credit.

The High Court referred to definition of 'input service' and extracted at length passages from the orders passed in Gujarat Heavy Chemicals - 2011-TIOL-383-HC-AHM-ST, M/s. Ultratech Cement Ltd., Tax Appeal Nos.21 to 23 of 2011, Cadila Healthcare Ltd. - 2013-TIOL-12-HC-AHM-ST, Parth Poly Wooven Pvt. Ltd. - 2011-TIOL-891-HC-AHM-ST Deepak Fertilizers & Petrochemicals Corpn. Ltd. - 2012-TIOL-1888-CESTAT-MUM, Doypack System Pvt. Ltd. - 2002-TIOL-389-SC-MISC, Coca Cola India Pvt. Ltd. v. C.C.E., Pune-III, - 2009-TIOL-449-HC-MUM-ST, Tax Appeal No.22 of 2014 rendered on January 31, 2014 in the case of Central Excise v. Inductotherm India P. Ltd., and observed -

++ In case of all three services in relation to which substantial question of law has been framed there is no specific inclusion of such services in the definition of "input service".

++ Any service used by the manufacturer directly or indirectly in relation to manufacture of final products and clearing of final products upto the place of removal would certainly be covered within the expression as held hereinabove. In the present case, the place of removal would be the port.

++ The Revenue at no point of time has disputed the factum that the services in relation to which the CENVAT credit is claimed by the manufacturer-respondent were availed for the purpose of clearing the goods for the purpose of export.

++ Considering the role of Customs House Agent and Shipping Agent for rendering Customs House Agent Service and Shipping Agents and Container Services, the decision of this Court in Cadila Healthcare would apply and the definition of "input service" would also cover both these services, considering the nature of services rendered by them and the place of removal being the 'port' in this case.

++ With regard to the commission paid to the overseas agents and service tax paid on the value of commission paid to the overseas agents under the business auxiliary category, which is a taxable service, the services are provided by the Commission Agent. The assessee took CENVAT credit of service tax paid on commission paid to the overseas agents for the goods exported. The eligible category of service for availing the credit is that the service should be used directly or indirectly in the manufacture or clearance of final product, as neither for the purpose of sales promotion, the service of overseas commission agent has been used. The denial in the case of Cadila Healthcare - 2013-TIOL-12-HC-AHM-ST to the commission paid to the overseas agents shall apply to this category of service, where the service is rendered for overseas commission. This is required to be answered in favour of the Revenue and against the assessee.

++ Accordingly, the substantial question of law raised in respect of the following three categories of services i.e. (i) Customs House Agents Services, (ii) Shipping Agents and Container Services and (iii) Services of Overseas Commission, is answered partly in favour of the assessee so far as aforesaid category Nos.(i) and (ii) are concerned. Insofaras category No.(iii) i.e. Services of Overseas Commission is concerned the same is answered in favour of the Revenue and against the assessee.

Limitation: Admittedly, the respondent-assessee had shown availment of CENVAT credit in Part IV and V of ER-1 returns filed by it. Insofar as the third service where this Court has held in favour of the Revenue and against the respondent-assessee, we are of the opinion that the extended period of limitation would not be available to the Revenue in absence of any material to indicate suppression on the part of the respondent-assessee. It is not in dispute that there was no suppression nor any misrepresentation in respect of CENVAT credit availed by the respondent-assessee in respect of these services.

The appeal was disposed of accordingly.

(See 2014-TIOL-1692-HC-AHM-ST)